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Exam 8: Liabilities and Stockholders Equity

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Question 51

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One of the conditions for paying a cash dividend is formal action by the board of directors.

A) True
B) False

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Question 52

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The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets, liabilities, or stockholders' equity.

A) True
B) False

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Question 53

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When a corporation issues bonds, it executes a contract with the bondholders known as a bond debenture.

The interest rate specified in the bond indenture is called the:

FICA tax is a payroll tax that is paid by both the employee and the employer.

Liabilities that are due and payable beyond one year or paid out of noncurrent assets are termed long-term liabilities.

Medicare taxes are withheld from an employee's pay only till the employee has earned a specific amount each year.

Federal unemployment compensation taxes that are collected by the federal government are not paid directly to the unemployed but are allocated among the states for use in state programs.

When are contingent liabilities required to be recorded?

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

Most employers are required to withhold a portion of the earnings of each employee for FICA tax.

The excess of issue price over par of common stock is termed as:

June Co. is considering the following alternative plans for financing the company: $\begin{array}{|l|l|l|}\hline \text { Plan II } & \text { PlanI } & \\\hline \$ 3,000,000 & - & \text { Issue } 10 \% \text { Bonds (at face) } \\\hline \$ 1,000,000 & \$ 4,000,000 & \text { Issue } \$ 10 \text { Common Stock } \\\hline & & \\\end{array}$ Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

Which of the following is not necessary for a corporation to pay cash dividends?

The amount of capital paid-in by the stockholders of the corporation is called legal capital.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell:

Which of the following is usually not a prerequisite to paying cash dividends?

Obligations that depend on future events and are based on past transactions are contingent liabilities.

A corporation has 10,000 shares of $100 par value stock outstanding that has a current market value of $160. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $32.

The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a: